Landlords who rent to students report low arrears, higher than average yields and reduced ‘voids’ due to sustainable demand for rental properties. A study by utility company Glide found that 69% of landlords and letting agents prefer to let to students, and 84% agree that students make good tenants.
What Are My Options?
The three main buy to let options for students are HMOs (house in multiple occupation), MUFBs (Multi Unit Freehold Blocks) and student pods (individual rooms or flats in a larger unit).
HMO
A HMO is typically a 4-5 bedroom house. Multiple tenants have separate contracts but share kitchen and bathroom facilities. Houses of 5+ tenants do require a costly HMO license from the Local Authority, but higher than average yields tend to exceed this outlay.
MUFB
Yield wise, MUFBs (which consist of several apartment units on one freehold title), slightly outperform HMOs at the moment, but require a greater initial outlay. Lenders tend to prefer these two types of accommodation – it can be easier to calculate a more favourable mortgage.
Student Pods
Student pods are a seemingly cheap option, but mortgage lenders dislike them because they can’t repossess the property in the case of a default. As a result, you need to be able to buy outright. There has been controversy as promised yields failed to materialise, and experts recommend steering clear.
What Are The Benefits Of Renting To Students?
The main benefits are that it’s profitable, and reliable. No investment is 100%, but student accommodation has a number of things going for it. Multiple occupants in a HMO or MUFB means higher income, with an average 9% yield – compared to 6.5% for traditional tenancies. Students are also oddly reliable – the NLA found that only 38% of student landlords had experienced arrears (compared to 59% of landlords renting to blue collar families). Student loans mean that tenants will often pay a term’s rent upfront, and parents make excellent guarantors.
Demand for student housing often outstrips supply, and there is a new, ever expanding annual market for rental properties. While this means increased turnover, landlords can often charge a higher rent in University cities due to simple supply and demand.
What Sort Of Property Should I Buy?
First you need to decide who you want to rent to. Most regular students don’t have high expectations, making cheaper, large old houses a good option; especially given their reputation for causing property wear and tear. Ensure necessary repairs are made and that there is basic furniture, but décor is less of a priority than location.
Mature and post-grad students will likely want better quality accommodation, but will take better care of your property, helping it to appreciate in value. A modest outlay for refurbishment and higher quality fixtures and fittings is a good investment.
If you want to cater to a more upscale market, consider international students. Wealthy foreign students attending universities like Lancaster and Herriot Watt are used to a higher standard of living; they will pay well, but demand real quality. This kind of accommodation is more of a risk, but offers higher returns.
Where Do I Start?
Determine an area and choose your property. Acquire any necessary licenses and visit your local mortgage broker to arrange financing. Then begin advertising – on social media and through student accommodation providers – you might even be able to get a mention from the local university!
